Home Mortgage - Part 3

Too many people today have bought homes in good neighborhoods where their houses should increase in value over the years only to see the opposite happen. Why? For one thing, that area might have been in a large town with excellent employment opportunities. As those jobs disappear for one reason or another, the home owners must move to find new jobs. These forced sales lower the prices on the houses in the area. Who has not seen nice middle class areas become lower income housing in as little as ten years? In other words, in the good old days Dad had a job for life and, therefore, spent his life in the same house. Today's society just simply does not work the same way. You may buy a house in an area of rapidly increasing home values today and in ten years not be able to sell it for even what you paid for it. We do not see this trend changing back to the good old days as there is no more job security in the world. Therefore, you need to re-think your ideas on building equity in your home.

However, there is another aspect to equity if you are sure you will be living in your house for say 25 years out of a 30 year mortgage. In this case, because you have paid off most of the house value, no matter what the value is, you have equity in your home. That is, even if the market value has gone down, the house is still worth something which you now own. Staying in your home for such a long period is like a forced retirement plan. That is, when you retire and have your house paid off, you will be able to live rent free (although still paying property taxes) or you can chose to sell the house in order to move into a smaller retirement apartment and invest the remainder of your sale price. Thus you will have put your money into this house for 25 or more years and then be able to sell it and use this money for your retirement even though you will not make back what you originally paid for it 30 years ago.

The other aspect in buying a home is the interest you pay on the loan over 30 years. That is, a house that you buy for $120,000 will actually have cost you over $200,000 by the end of the mortgage. If the house has appreciated in value, then you hope to make up some or all of this interest payment. However, today the average income family will not see this happen. So now you have a home you paid over $200,000 for and can only sell it for $110,000 after depreciation.

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